FOMC Meeting Minutes Reveal Cautious Stance to Interest Rate Cuts

FOMC Meeting Minutes Highlight Cautious Approach to Interest Rate Cuts

The Federal Reserve released the minutes from its latest Federal Open Market Committee (FOMC) meeting, indicating a cautious approach towards cutting interest rates if inflation's downward progress stalls. Almost all participants believe that risks to employment and inflation remain balanced. The minutes, from the November meeting, revealed confidence in inflation easing and a strong labor market, supporting gradual interest rate cuts.

Interest Rate Decisions and Market Reactions

Despite inflation still being above the Fed's 2% target, officials are comfortable with its pace and anticipate further rate cuts without specifying the timing or magnitude. The FOMC voted unanimously to lower the benchmark rate by a quarter percentage point to a target range of 4.5%-4.75%. Market expectations for a December cut have diminished, partly due to concerns over President-elect Donald Trump’s potential inflationary policies.

The meeting minutes, however, did not mention the election directly, except noting increased stock market volatility before and after the results. FOMC members also expressed uncertainty about the neutral interest rate level, complicating monetary policy assessments and suggesting a gradual reduction in policy restraint. While inflation pressures remain due to shelter costs, policymakers believe they will ease. 

Labor market conditions are stable despite slow October payroll growth attributed to regional storms and strikes. The minutes emphasized no rapid labor market deterioration, with low layoffs.

Financial Market Developments and Economic Outlook

The meeting, held on November 6-7, reviewed financial market developments, noting rising Treasury yields due to strong data and monetary policy signals suggesting slower policy easing. Equity prices rose, and market volatility decreased post-election. The federal funds rate path shifted higher, reflecting reduced downside risks, and balance sheet runoff expectations extended into mid-2025. 

Internationally, policy rate expectations fell in most advanced economies except Australia and the UK, contributing to a stronger dollar. Money market conditions remained stable, with limited usage of the standing repo facility and reduced ON RRP facility participation due to increased Treasury bill supply. The staff's economic review highlighted solid GDP growth and moderated job gains, with low unemployment and easing inflation. The labor market showed resilience despite recent disruptions, and wage growth remained stable. 

Conclusion 

Foreign GDP growth improved slightly, and inflation continued to ease, particularly in advanced economies excluding Japan. Overall, the financial situation reflected higher federal funds rate expectations, increased Treasury yields, and improved equity markets. Short-term funding markets remained stable, with significant but temporary upward pressure around the quarter-end. The Fed's cautious stance reflects ongoing uncertainties and a measured approach to future rate adjustments.